Whether CAs can pay GST on receipt basis?

In the Service Tax era, CAs and other professionals (individuals and partnership firms including LLPs) were enjoying a benefit of paying Service Tax on receipt basis. That means Service tax liability need to be discharged on the basis of collection from customers/clients (actual receipt amount). The collected amount was to be considered as inclusive of Service Tax portion and the liability of Service Tax needed to be discharged in the quarter in which actual money is received irrespective of date of bill raised. Though, this benefit was available only for the professionals whose gross receipts were less than Rs. 50 Lakh for all registration numbers of the same entity taken together.

Now, there is no such provision for paying GST on receipt basis in GST era. Therefore, no one including professionals could enjoy benefit of paying GST on receipt basis from the clients/ customers.

Further, presently, services are taxed at the place of rendering; however in GST, they would be taxed at the place of consumption. If services are rendered from one State to another, then tax would ultimately go to the consuming State. Therefore, in terms of procedure, their compliance will increase substantially.

Moreover, more than 40 services will be transferred to the States. Further, their base may further be widened by specifying more services or withdrawing the existing exemptions.

With the inclusion of VAT and Service Tax into GST, the controversy as to the nature of activity will be resolved. Moreover, disputes as to availability of certain exemption towards value of goods sold (such as photography services) will also be put to rest.

GST for Small Businessmen:

However, for small businesses, there are provisions for paying tax on composition basis which are enumerated in Sec 9 of Model GST Law.

Sec 9- Composition Levy

(1) Notwithstanding anything to the contrary contained in the Act but subject to subsection (3) of section 8, on the recommendation of the Council, the proper officer of the Central or a State Government may, subject to such conditions and restrictions as may be prescribed, permit a registered taxable person, whose aggregate turnover in a financial year does not exceed fifty lakh of rupees, to pay, in lieu of the tax payable by him, an amount calculated at such rate as may be prescribed, but not less than two and a half percent in case of a manufacturer and one percent in any other case, of the turnover in a State during the year:

Provided that no such permission shall be granted to a taxable person –

(a) who is engaged in the supply of services; or

(b) who makes any supply of goods which are not leviable to tax under this Act; or

(c) who makes any inter-State outward supplies of goods; or

(d) who makes any supply of goods through an electronic commerce operator who is required to collect tax at source under section 56; or

(e) who is a manufacturer of such goods as may be notified on the recommendation of the Council:

Provided further that no such permission shall be granted to a taxable person unless all the registered taxable persons, having the same PAN as held by the said taxable person, also opt to pay tax under the provisions of this sub-section.

(2) The permission granted to a registered taxable person under sub-section (1) shall stand withdrawn from the day on which his aggregate turnover during a financial year exceeds fifty lakh rupees.

(3) A taxable person to whom the provisions of sub-section (1) apply shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax.

(4) If the proper officer has reasons to believe that a taxable person was not eligible to pay tax under sub-section (1), such person shall, in addition to any tax that may be payable by him under other provisions of this Act, be liable to a penalty and the provisions of section 66 or 67, as the case may be, shall apply mutatis mutandis for determination of tax and penalty.

Above provisions can be summed up as below:

Any taxable person whose turnover is below Rs. 50.00 Lakhs in the previous financial year, will get an option to pay tax at a composition rate which will not be less than 2.5% for the manufacturer and 1% in other cases.

Following conditions need to be fulfilled for availing this benefit:

1. The registered taxable person (RTP) will have to obtain permission from proper officer.
2. Composition scheme once obtained will be compulsory for all registered person having same PAN all over India. Person having multiple states location would have to obtain such permissions at all the locations having same PAN.
3. Permission of composition levy will be withdrawn from the day on which turnover exceeds Rs. 50.00 Lakhs.
4. This benefit is applicable only for intra – state supply of goods and services
5. RTP will not be eligible for input tax credit
6. RTP cannot collect tax from his customers.
7. If any RTP contravenes the above provisions, then he will not be eligible to pay the tax under composition method, but he will have to pay tax under normal method and a penalty and interest under section 66 or 67

Benefit of these provisions is not available to the RTP who:

1. is engaged in supply of services.
2. makes any inter-State outward supplies of goods;
3. makes supply of goods which are not leviable to tax under this Act
4. makes any supply of goods through an electronic commerce operator who is required to collect tax at source under section 56; or
5. who is a manufacturer of such goods as may be notified on the recommendation of the Council.

Thus it is clear that Service Providers cannot take benefit of paying GST on receipts basis (like in Service Tax for small service providers), nor they can take benefit of composition provisions for small business in GST due to specific exclusion.